"More than 41 million Americans are uninsured."

Depending on the point of view, America is facing a health care apocalypse, a health care crisis, or just "frictional dislocations" of health resources (Chollet and Kirk, 1998; Boushey et al., 2001). For those who are fortunate enough to work in a large firm, who have high incomes, and who have generous health plans, there is no crisis at all. For those who work in moderate-size firms, who have average incomes and limited choices among health plans with lower lifetime benefits, longer waiting periods, higher monthly premiums, and other restrictions, there is a health care crisis (Acs, 2001). For those who are underinsured or who are not insured at all, there is a health care apocalypse (Taylor, 2002; Blendon, 1999; De Posada, 2002).

Politicians in a position to affect public policy are typically focused somewhat narrowly (Litow, 2002; Nelson, 2002). They are usually caught in the crosscurrents of pressures to do what is right and to do what existing resources allow. Their actions are heavily influenced by their environment - close friends or neighbors who are disabled or whom they perceive to have been wronged by the system, political and social groups with whom they have intimate ties, and other channels from which they regularly receive information. This study is written in part to add to their perspectives.

Employer-Based Health Insurance. The American health care system is largely an employer-based system. After World War II, employers found that offering a health care plan was a way to attract employees (Bean and McFadden, 2000). Medium- and large-size employers began offering very basic benefits, typically as indemnity plans.

Health benefits were a powerful recruiting tool, and employers offering them enjoyed a significant competitive edge in the labor market. Labor unions increasingly saw them as a non-taxed alternative to taxable wages. The result was that employer-provided health care plans flourished with little regulation at any level of government.

Government Regulation. As employer-provided health plans became widespread, government at various levels began to intrude. Politicians and special interests began to grasp the potential to shift health care responsibilities and costs from the government to employers (Wilson, 2000). Society began to view employer-provided health care plans as an employer responsibility rather than an employment benefit (Westerfield, 1991). In time, government regulation became an important factor in determining the type of health insurance to which Americans had access. As we shall see, the unintended consequence of increasing government regulations was the creation of forces that increased the numbers of people without health insurance.

Who Are the Uninsured? As Table I shows, the Census Bureau estimates that more than 41 million Americans are uninsured (Levitt et al., 2000; Levitt et al., 2002). Who are they? They are predominantly young, healthy people with modest or low income.

"The uninsured are predominantly healthy 18-to-34-year-olds with modest or low incomes."

Table I shows that people between ages 18 and 34 account for slightly over 60 percent of the uninsured by age. The male portion of this group is typically healthy and optimistic and prefers cash compensation to other benefits. Although this is the prime age for females to start families, professional women tend to forgo childbearing until later in life when their careers are well established and their financial status has improved.

Roughly one-quarter of people with incomes of less than $25,000 per year do not have health insurance. By contrast, among those who earn $75,000 or above, the percentage without insurance is 7.7 percent. Further, 62 percent of the uninsured are under the age of 35. Only 20 percent are over the age of 44. Annual health expenditure is far lower in young populations than in those nearing or at retirement (Fronstin, 2001). Moreover, 74.1 percent of the uninsured rate their health status as "excellent," "very good" or "good" (Brown et al., 2002).

"About one-quarter of people with incomes less than $25,000 per year do not have health insurance."

One of the reasons why people in the lower-income categories are not covered is that they are healthy and do not believe they need insurance, or at least they do not believe it is worth what it costs. Young, healthy and low-income are precisely the characteristics of people who are highly sensitive to the price of insurance. As a consequence, people with these characteristics tend to be the ones most adversely affected by public policies that raise insurance premiums and most positively affected by policies that lower premiums.

Notice also from Table I that more than 90 percent of uninsured adults have some attachment to the workforce. This means that public policies that make it easier for employers to provide insurance to their employees have a potential to substantially reduce the number of uninsured.

Are Association Health Plans the Answer? In general, health insurance sold in the marketplace is regulated by state governments. However, about half of the people with private health insurance obtain it from an employer that is self-insured and is exempt from state regulation (Kaiser, 2002). These exempt plans fall under regulations enforced by the Department of Labor.1 As a result, a large company with employees in every state can rely on uniform, nationwide rules instead of confronting the disparate regulations of 50 separate states. Moreover, as a practical matter, only large companies can self-insure.

Association Health Plans (AHPs) are plans created for individuals and groups who belong to associations. For example, the National Association for the Self-Employed (NASE) makes AHP insurance available to its members throughout the country. NASE insurance is typically subject to some of the same state regulations as other insurers but is exempt from other regulations. AHP insurance may be thought of as a third kind of insurance, and the potential for growth of this insurance is quite large - given a favorable regulatory climate. For example, the National Restaurant Association could potentially offer AHP insurance to restaurant employees in all 50 states, and the National Rifle Association could potentially offer insurance to its members.

"Association Health Plans have the potential to insure the uninsured."

There are about 15,000 associations in the United States. Many of these are job- or career-related. Many others are related to hobbies or interests. For example, among the largest associations is the American Association of Retired People (AARP), which collects dues from about 35 million members and provides services in return. One of those services is supplemental medical insurance for seniors enrolled in Medicare. Although most associations do not offer health insurance, the potential is there. Some 6 million Americans are insured through associations and the number is growing (Matthews, 2002).

Proponents of AHPs argue that they have great potential to insure the uninsured. If AHPs could operate under uniform, nationwide regulations, they would be able to offer individuals and small businesses some of the same cost-cutting advantages now available only to large businesses. Accordingly, some proposals in Congress would allow AHPs to be chartered under federal law and avoid many state regulations. Other proposals would allow an AHP chartered in any one state to sell insurance in the other 49 states, abiding only by the regulations in its home state.2 Critics of AHPs would like to curtail their growth rather than expand it - principally by subjecting AHP insurance to the state regulations that apply to all other commercial health insurance (Terhune, 2002 a, b).

This study carefully considers these issues and concludes that AHPs have a significant potential to solve a major social problem: insuring the uninsured by providing lower-cost products more likely to meet the needs of those who have been priced out of the market for other health insurance.